I apologize if this seems a bit critical, but as I watched, I had some "yeah, okay, but" thoughts. Please know it's not meant as a challenge; I enjoy your content, especially your 4% rule video, which even made my pension spreadsheet emotional! My response is looong due to addressing specific points. I invest in both and pensions, pretty much equal on both, and I have to say I found the presentation a little confusing. I couldn’t relate to the numbers and scenarios used. It’s a comparison between pensions and properties which I assumed would be investment property but the first half was primarily focused on residential property equity, then dipping into BTL and even flips but never clear which strategy you were comparing against pensions. For example the 'best investments' graphic showed residential property at 6.32% with global shares at 8.26%. Is the investment strategy simply to buy the biggest house you can to live in instead of a pension then eventually downsize? I'd imagine that stopped working somewhere around the 1992 crash. If you are comparing pensions to property as an investment, I would have thought the comparison would be investment property not residential. For the uninitiated, the Pension vs Property discussion needs to first define what "property" may mean, then stick with that. ie flips or rentals. Flips are great in a buoyant property market but stop working in stagnant/falling markets. Flips is also "a job", you are a fulltime builder and project manager more than an investor, its hard to do it well and keep a PAYE going. The rental market is more passive, essentially subdividing into these areas: >Holiday lets/serviced accommodation (potentially good, too many peaks and troughs for me) >Residential (single family homes, student accommodation, HMOs) >Commercial (shops, offices, etc - usually biggest profit here, but not a market I know) I'm a simpleton, so only do vanilla single-family homes BTLs. It has the worst tax breaks and is the most regulated sector but is easy to learn at least and quite predictable. There are two incomes streams: equity and net cashflow. The £30k example was confusing. You said 33.97% RoI, but that was off the back of a one-off tax relief payment. You don’t get that in year two, or three, etc and you don’t take out a pension for a single year so its not really a quotable RoI. For me, a pensions discussion is about how much do I put in and what does that give me in retirement in terms of a monthly payment, the pot size is secondary. The real RoI is when you actually start taking money. So the comparison is really this: 1. As an HRT, if I put in 30k after tax treatment that becomes 45k. Another of your videos says the realistic drawdown is 3%, so a 45k pot achieves an income of £1,350/yr. 2. A property investor, I know that a 30K investment gets me a decent property achieving £650/m rent but, after costs (mortgage, full management, insurances (RGI, legal, buildings), maintenance (10% budget), accountant, etc) I'm left with around £175/month or £2,100/yr. So not double, but a solid 55% more. Note that I've compared the two investments without even mentioning equity growth and leverage. That’s because I prioritise yield over equity. I pretty much ignore the thing you focused on. Equity happens but I don’t put too much thought into it, yield is money in your pocket today. Equity is speculative. Here's bunch more "hhm, but's" that popped into my head whilst watching: * Tax incentives: Free money is good, but there is a cost. The free money ties you into a restrictive product, you can't access any of your money until 55/57, once you start drawing down you are very restricted on future investments into your pension. * Property has tax-free drawn down as well, you just refinance. If you buy a property at 100k with a 25% deposit, there is 75k owed to the bank. After ten years of 6% house price growth, you have an asset worth 180k. The bank will lend 135k on that, leaving you holding 60k tax free cash (ie a 33% tax free payment). Unlike pensions, you haven’t eaten into the value of your asset, you still own that 180k pile of bricks, next year you still get 6% growth on that 180k. The downside is you can end up in a CGT whole if you are ever forced to sell. * Comparing rental income to a tax-free lump sum isn’t like-for-like. The tax-free lump sum is a one off, so closer to refinancing. Rental income is the equivalent to regular draw down payments - which are taxed both the same (property does allow you to gift to a spouse if they aren’t using their tax allowance). * Not being tied into the government's restrictive pension model rules means you get to keep the rental income from the day you bought. You can spend it, reinvest it, do whatever you want. You can even pay it into a pension! * Property investment is lumpy. If you invest £100 into a pension it earns from the day you pay in. With property you are investing in lumps of (at the very least) 30k. it takes a while to save £30k, it takes several months to find and buy a property. That’s all-dead time vs a pension. * Pension pots run out. Does the 4% rule work? probably not, 3%? Maybe; but if you've estimated correctly, at the point of death, there probably wont be much left. If you live too long you become a burden on your family. Property income comes from the rental service, not by slowly selling off the asset. It's still there when you die, with careful tax planning your kids can inherit your retirement. * Both vehicles grow; if you a lucky you may tap into the average global growth of 8%. Your pot goes up by 8% compound which in turn means your future 3% drawdown goes up (but once you start drawing down money those 8%'s are on smaller amounts. Property is different, the regular income is linked to the rent/debt ratio, not the asset value. * Leverage has been mentioned; at 75% ltv, a 2% increase in your property price equates to 8% increase in your investment. No tax incentive, but 4:1 gearing is hard to beat. Up until 2009 equity growth on investments was a big deal, especially in London and the south. Less so now, cashflow is king. * The 4% rule fails on pensions mainly because you need to keep adjusting for inflation. You don’t really get that on property. Rents continue to go up largely in line with inflation, so you don’t need to account for it. In fact, costs in BTL are pretty much fixed on the day of purchase and inflation eats away at debt over time. I kicked my spreadsheet the other day and noticed that a 2% increase in rent equates to a 6% income increase (3% increase becomes 9%, etc). If your boss told you can have a 6% pay rise every year, you'd be happy, its inflation busting. * There are tax friendly and inheritance wrappers for property of course. I don’t pretend to know much about tax friendly investments, and they typically come at the cost of higher lending and accountancy charges but are ever more popular since section 24 was introduced. Unless you die unexpectedly early, a pension pot is typically pretty much depleted at point of death so is tax-free inheritance is that much of a big deal with pensions? * Costs: The initial cost is 3% SDLT + £1,000 legals plus tenancy set-up (around £500 for safety checks, contracts, etc). The ongoing costs are already accounted for in the 10% maintenance. Refurb costs can typically be taken back out at the next refinance point. In terms of developing costs too add value: again this is conflating residential and rental properties, they are two different things. You don’t buy a rental to extend it and store equity, you buy for cashflow. You wouldn’t spend 40k on a rental property to add an extra room that may bring you in an extra £100 and cost you a fortune being empty for 6 months while you do it, you'd just spend your 40k buying another property. * BTL isn’t for everyone, it only appeals to a certain type. Like many people I started accidentally, our house sale fell through, the market crashed so we decided to carry on with our purchase and rent ours out. That was 25 years ago, we liked it so carried on. Whilst I can confidently say in 25 years, I have never taken a call in the middle of the night and have never personally called out a plumber, the property business does nonetheless take a fair amount of time to research, learn the different markets, to purchase, etc. Most time is spent learning the business, its pretty high stakes. Once learnt, provided you structure properly, the ongoing management is low. A friend of mine has 37 properties in his portfolio, he stopped buying a while ago and now spends less than 5 hours a month on property. That’s not too bad for a six-figure salary. He's in his late forties - no dependency waiting around to hit 55, being tied to access rules to receive tax gifts. * Government! The biggest risk to property investment is government interference. You get a little of that in pensions with tax tweaks etc but nothing like property. Additionally, there are serious legal implications if you don’t do know your obligations as a landlord and get things wrong. Government is the single biggest reason so many landlords are retiring and why so few new landlords are replacing them. The government has created a rental market crisis. I get that I may have painted an overly rosy picture of property, but I haven’t spoken about voids, tenants damage (which can be in the 10k's), the costs involved in regaining your property if the tenant refuses to leave, etc. If you jump onto any landlord forum you will regularly see "SIPP or another BTL" threads and responses are mixed - if anything the consensus seems to be slightly in favour of pensions or ISA's. The landlord community is pretty downbeat at the moment. I'm not completely evangelical for property, I just wanted to show how we (well, some of us) view and compare the numbers.
Hi Chris…thank you for such a great video. It’s refreshing to listen to an expert who isn’t selling themselves. Your balanced and methodical approach is very welcome and highly useful!
Really good video Chris. For many years we thought about getting a buy to let property but decided to get advice from a financial planner. We were advised, due to our age nearing retirement and our financial circumstances to invest in ISAs, contribute more to our pensions, invest in a disretionary onshore bond and get a whole of life insurance policy to safeguard our estate against inheritance tax. These investments are the best things we did. We retired early. Enjoy a lucrative hassle free retirement with a much improved lifestyle from income from our investments and we will still leave a sizeable estate to our children. Your videos are priceless Chris and the value of getting professional financial advice is well worth every penny.
The value of good financial planning showing through right there Shree. When people receive proper financial advice, not just ‘product selling’, its power can be life changing. Thanks as always for your support.
@@chrisbourne-retirementplanner Yes Chris, absolutely good ongoing financial advice vs product selling is very different. I think people are afraid of adviser fees, however, the funds financial planners choose and the strategies they use to make you good money more than offsets the ongoing charges they apply. Particular as you get older. It's a one stop shop for all your tax and financial planning. Leaving you to enjoy your retirement to the fullest. My husband and I watch your videos every week and never fail to share them with family and friends. In fact, my children are really enjoying investing, particularly during these low market conditions.
Great video, Chris. Very well balanced and food for thought. When I was a teacher I would obviously have my pay deducted for pension purposes but haven't given a pension much consideration since quitting teaching. I've focused on property initially because the income now has enabled me to quit my job and do more of the things that I want to do. It hasn't really been a retirement focus. But as I get closer to meeting my present day cash flow goals, it is something to consider. Thanks for putting it back on the radar. 😀
Just came across your channel. Undeniably, pensions are better for IHT, Capital Gains and ‘Passiveness’ but it ends there. Property prices have risen 200% in the last 20 years plus what you get in that time by way of rental payments. The huge advantage of property over pension is that you can access property funds whenever you like. You don’t have to wait to retirement age. If you put a solid plan in place you can easily retire with property in 10 years if you reinvest and put additional capital (bonuses) etc. into it. You never know what the government will do with retirement age and frankly I don’t want to wait to 57 to start life without the burden of ‘having’ to work. Great insights though and both together is probably the right approach but I can also see why people wouldn’t want to put effort into property given the legislation and interest rate rises, but if you know what you are doing and stick to the numbers it still beats anything else out there for me
Just my opinion and open to criticism but...leveraging allows re-mortgaging to release original deposit again. We brought BTL (covers its own costs) and remortgaged 5 years later to get our deposit back out. Currently house has cost us nothing and is getting capital gains and monthly income (currently covers costs but one day will pay me monthly) . So in a 15 years time an investment of roughly £0 will be paying me £750 a month (non adjusted at todays rent rate). I have a Defined benefit pension with a cash value of £58000 that will apparently pay me £110 a month at retirement. For me there is no contest. And the deposit we recovered goes towards another house.. and so on. Many thanks for your insights.
No criticism there Tom. This is what I’d refer to as ‘good debt’. An example of the excellent leveraging potential of property. I imagine that pension is deferred (not active) and hasn’t received much in the way of contributions from you though? Pensions have to be nurtured to unlock their real potential.
I'm doing both, can't beat the leverage options available with BTL, and helps with the pre 57/58 retirement options. Another great video though and one of my favourite channels. Close to 10k subs now, onwards and upwards!!
Yes I really believe property offers some major advantages Stu. Sounds like you’re taking a well diversified approach! Thanks for continuing to support my channel 👍🏼
Like the video Chris. Enjoyed the last section, as someone who has our commercial property sat in his SIPP - gives the best of both worlds in my view. Viewers may not spot (but you did say) the property has to be commercial, and the rent has to be verified by independent RICS surveyor. You then have the usual Landlord things to deal with (like replacement CH boiler) that comes out of the income (dependent on Lease clauses). But the rent obviously avoids tax in our business, and comes in tax free into the SIPP. And as you say the sale is free of CGT. The only observation I'd make is that until cash build up in the SIPP there's little flexibility to draw down unless you borrow against the property, which is counterproductive. As an observation, it feels like the number of SIPP providers who offer this is reducing - you may have a view on that.
I totally agree with you that the market seems to be shrinking. It is a specialist area though, and there are still some good providers. You’re right about cash too… it helps if the rental income can accrue over a fairly long period before withdrawal.
@@chrisbourne-retirementplanner i still watch and subscribe to your videos though, because incredibly informative and very well researched and who knows maybe one day...... Anyways keep up the good work.
Constantly ask myself the same.. Currently pay in nearly £500p/m into police pension which whilst still good nowhere near what it was. If this was invested in property seems to be a much better way to have a 'visible' pension growing. Would be looking and capital appreciation rather than day to day gains which could even put the monthly rent profit into a Lifestyle/ETF fund.
Property investment can certainly complement any pension Ryan. The great thing is that anyone can do it. You’re in a good scheme as well, the world is your oyster 😊
Great points. Also it’s worth keeping in mind that you can have your pensions invested in property through REITs and you might potentially get almost all the benefits of real estate without many of the drawbacks. Especially that Sunday night boiler breakdown call 📞…
Yes REITs are certainly an option and offer diversification benefits above directly held property. There isn’t the same potential to leverage your return, but a good low cost way to access property as an asset class.
Really enjoying your channel Chris. Sensible and informative always. Your points here are fair and to many this will be a surprise as we are a country of property owners in the UK. Unfortunately the tax regime has squeezed the buy to let market to the point of not making it quite so attractive. All intentional of course as the government seeks to free up property for people to live in rather than rent. Also BTL is easy money when it comes to taxation, so a nice tax grab for the chancellor
Thanks Linda I appreciate that. Yes you’re absolutely right - private landlords are a soft target when a bit of extra tax needs to be raised! Having said that, pensions do tend to come into the crosshairs for the same reason, but it’s only the wealthiest pensioners who are really affected.
The only thing that I don't like about pensions this availibilty age keeps getting higher and higher... I am 43 now and I wonder what age that I will be able to be getting access to my pension. They should lock the age limit depending on the time that you start investing. That's why I am leaning on more property investing than (work) pensions. I do invest in my ISA though...
It’s a fair point John. The moving of goalposts is frustrating. I agree there should be some sort of guarantee based on when you start investing into a pension.
Excellent video! Early on in the video, you state that a house bought some time back may have had a historic cost of £50,000. Then you state that running expenses and financing costs tend to be overlooked. You have made the assumption that the property was for habitation by the owner! Why have you assumed that? It is also possible that the house was bought for that initial sum and then rented out, say as a BTL, SA or HMO or whatever. If so, then those additional expenses would have been paid for in part or in full by the rental profits! You make the excellent point that unlike buying shares and bonds for a pension, buying properties can be leveraged hugely with the use of a mortgage, so with a 25% deposit of, say £50,000, you can purchase a house for £200,000! To buy £200,000 of shares, you need...£200,000 alas! Rather than seeing pensions and property ownership as in opposition, as you quite rightly say at the end, it is possible to marry them and work in unison, rather than in opposition! For example, a SIPP or a SSAS are pensions that could hold commercial properties. Specifically, a SSAS could borrow 50% of its value to increase its available cash. Furthermore, a SSAS could loan back half of its total value to the sponsoring company, which can then do what it likes with it, even investing in residential properties, like BTL, which the SSAS cannot do alone. Clearly, advice znd training would be needed before venturing down these paths. So, for me, it is not a question of which is better, pensions or property, but how to get the best out of them both through co-operation.
Hi John. No the assumption isn’t that the property is used for habitation, it is that the house is bought, refurbished and flipped. It is further assumed that this process is completed within a year. Based on this strategy, it wouldn’t be realistic to assume there would be any rental income received.
I plan to do a bit of both. At retirement or before if you can manage buy a 2nd property in the UK or downsize - ideally to somewhere that can be holiday let. Use pension lump sum to fund purchase of a property abroad, then live between the two properties and holiday let them when I'm not there.
My dad knows a friend that owns probably 10-12 rental properties and I've asked him about pension and stuff like that. He said, "if I ever need money I could just sell one property or half". He now is diversifying his cash in gold and silver and I believe he got a chunky amount of it, guy can easily have 2-15kg worth of pure gold if not more. I honestly don't see him being an ordinary old guy with a normal pension he would be either living off from rental income or sell some of the properties he got and survive with them. He only needs 3 or 4 to fulfill his lifestyle. The guy is frugal and only travel once a year with his family and the rest of the money is either saved up for future investments or buy insane amount of gold every year. I believe this is his pension and it seems to be working quite well. He's 46y old and i believe his first property was when he was 20-25. This allowed him to not work a job and instead focus on either growing more properties or just save money in gold when he and his wife gets old. in 20-30 years his kids probably won't have to worry about a penny.
The thing that will most influence your future wealth is what you do yourself, not what your friend's dad does. Most people do nothing, which is why most people are broke.
@@ChrisShawUK not everyone is gifted my friend :). I believe you can improve a lot of things including your finances but to own so much its basically connections in most countries im not saying its impossible alone but it does help to get someone to boost ya.
Really good videos Chris, very fair and balanced. For a layman like me, it’s hard to know who to trust my money with, do you have a video on how much money a person would need to invest in shares to live off a modest income before retiring? Thanks
Thank you. Yes, try these ones… Want To Build A £20K TAX FREE PASSIVE INCOME From Scratch? Here's How! ua-cam.com/video/diFUOeKuDJc/v-deo.html The Definitive UK Guide To Investing For Retirement After 40 (For Beginners!) ua-cam.com/video/M1-Ftuo1dl8/v-deo.html Hopefully they help!
Great video Chris. Nothing to suggest BTL will become any easier in the future. Costs of environmentally friendly policies such as installing heat pumps plus the end of rock bottom interest rates won't help. The biggest argument against BTL for me is time spent on repairs, dealing, with lawyers, accountants etc, it's surely easier to buy a few REITS
Hi Phil. Yes the tax changes and other action taken to penalise property investors has certainly reduced its attractiveness. There are still good opportunities of course, but they’re a bit harder to find.
Some good points- although your initial points about buying a house of it is your own property- you need some where to live so you would have to pay rent and still have all the bills anyway. So the point is really only valid for additional investment properties
You’re right Ian, but my point was that people transpose the growth they’ve achieved on their main residence to property investment in general, and use that as an unfair barometer against other methods of investment without really accounting for the disproportionate level of funding given to their property.
The section at 5:37 "if you sell the property in a years time"... Surely there's also the income from rental being missed off here? A property of circa £140k in my area would rent for over £1000pcm. So, there's an additional 12k+ to go on that bottom line? Not just the pure capital appreciation of the asset?
Thank you for explanation! What about buying property via Ltd as a business and work for yourself and grow portfolio and pass it on? What do you think?
Hi Anna. Yes there are certain advantages to owning property through a company structure, namely that you can control how much income tax you pay and can essentially avoid tax on gains by fully reinvesting profits. There are drawbacks however, in that it is more difficult to secure lending through a company structure because deposits have to be bigger, and rates are generally higher. You also wouldn't usually qualify for Business Property Relief on assets held in a property company, which means that your share of the value of the holdings would be subject to Inheritance Tax on death.
About 14 years ago I had some "spare" cash (sold a semi and bought half a detached in a cheaper area). I considered BTL, and chatted to strangers about lettings. When a fifth person told me how a bad tenant had not paid rent or utilities, had to be taken to court, and then trashed the property before disappearing, I crossed BTL off the list of possibilities. It all went into a SIPP and an ISA, with Vanguard. It's value has fallen occasionally, but it's always been more than I put in. I feel that drops don't really matter if you aren't ready to withdraw, so there's time for recovery. And no, they've never phoned at 6 on a Sunday to say that the boiler is broken!
Precisely Pam! If it’s truly passive you want then you won’t get that from direct property ownership (certainly not without cost). But that’s not to take away from the potential it can provide as an asset class.
He says at 7:30 if you have 30k, you can claim 7.5k (25%) as a basic tax payer then an additional 7.5 (25%) as a higher rate tax payer. You don’t get 50% back as a higher rate tax payer do you? And as as additional rate tax payer do you get 7.5+9.375 (56%) back?
I have a few properties , all mortgage free. I also have a few pension too . I will have to start thinking about my portfolio. Found the video super interesting, love the bit about linking a business and pension together. Some thing I will seriously consider 🤓🤓👍🤗
Thank you Lawrence. Sounds as though you’re in a good position. Are they all residential properties? Yes pensions can be great vehicles for holding the right sorts of properties.
Thank you for your message. All my properties are residential. Can residential properties be put in a pension or just commercial? All my properties are in London, leeds and abroad. Thank again 👍👍👍👍
Great video! Agree with all your points, for me the kicker is the passiveness of stocks v activeness of property. Also if you want leverage you can find this in the stocks world if you can handle/stomach the risks.
Definitely! And yes you’re right about leveraging stock growth with options like CFDs. Although you have less control over how much value can be added to a stock’s price.
Loved this video and showing great points thank you! I already have some properties and have been considering whether to purchase more or to invest it into pensions and ISAs in order to build up this asset class so this video came at perfect timing ! Plus it reiterated my thoughts too regarding the great benefits of pensions over property , especially the true passive nature and liquidity of pensions . Plus the goverment have bought in more and more regulations with buy to let properties in recent years, which again adds to the many costs involved in property too. I have heard about using your SIPP in order to purchase commercial property- this may be the way forward. Do you deal with purhcasing commercial through SIPPs, a video on this would be great, thanks!
Thanks Becky! There a certainly many benefits to taking a diversified approach. I do quite a lot of work for clients involving purchasing commercial property with their SIPPs and SSASs. At some point I will definitely do a video on this.
A lot of British Gas guys have transferred to a SASS and have eventually through a bit of layering have purchased residential BTLs dont know how its done exactly
To my mind it's not a case of either/or it's both. However this presentation fails to look at buying a property and holding it. Using the example that Chris uses for the property : Assuming property is let at £7800 per annum. Letting agent and other costs = £2000 pa Mortgage interest costs £2700 That leaves £3100 positive cash flow pa (or 10.3% yield) before tax that will keep paying out, and increasing, year after year. I point this out because I started with £1000 to my name. I now have a few properties and my position is that whilst I have a chunk in a SIPP, also a chunk in an ISA, I will never need them becasue the houses give me £35K a year after costs which is more than I need to live on to my current standards by a considerable margin. So it is certainly possible to be financially independent through property. But still it's a fact that I think spreading investments between property and a pension is a very good idea. Anyone that has been in the rental property game over the last 6 or 7 years will be well versed in the grief that the powers that be have thrown our way over that time with tax changes/regulation changes/new laws/ etc etc, so having an alternative investment strategy running at the same time does no harm at all. PS. Buckle in for the property crash in 2026, it'll be quite a ride ..... but not a problem so long as you're into property for the long haul, if you've flipping properties it could be a different story unless you plan and execute your strategy well.
@@chrisbourne-retirementplanner a little bit and often. You must keep maintaining the property and keep on top of jobs. It's easy to underestimate the cost of this. Find some reliable tradesman or do it yourself. End result is happy tenants and a decent/quality asset.
You can't include utility bills as a cost of living in a house. If you rented instead you'd still be paying bills, council tax etc, they're just a fact of life, a tax on being alive. Maintenance is certainly a cost but no one forces you to get a new kitchen or ... orangery (?) and, unless derelict previously, they barely increase the property value. I also think comparison to the stock market is a bit dubious. Yes shares might have gone up in price faster over the last 23 years but did all of those shares pay substantial dividends? Normally stocks that rise in value don't pay dividends and vice versa. Property pays substantial dividends in the form of rent. (or if you live in the property allowing you to avoid paying rent to someone else). A fair comparison would be consider only shares which have paid, on average, 5% dividends throughout the period.
Hi John. Utility bills for your own home are a fact of life, but in this example we’re referring to utility bills on a property you’ve bought to refurb and sell - they’re not a fact of life, but a cost that has to be taken account of when calculating the return on investment. There is no tenant in there covering those costs so you as the owner would have to cover them. The stock market assumption just uses historic data, which shows a total return including share price growth and dividends. It’s not guaranteed of course, but used as a guide for the purpose of comparison. The figures are based on the whole market rather than a particular subset of companies. Rental yields are indeed a valuable part of property returns, but they are not relevant to the example given and in many cases are used to service the cost of debt.
Before I watching I thought, "duh, obviously property!". Now, nine minutes in, I'm thinking I've been missing a trick. Definitely need to improve my understanding of pensions' benefits and risks. By nature I'm conservative with investments and have stuck to property, and have always gone for fixed-rate repayment mortgages. I'd have been better off with trackers over the past few years, but the fixeds have given me peace of mind. I do need to get my finger out and ensure things are planned to avoid inheritance tax.
Hi Chris, Interesting video. Not thought about it the way you have set out before. I have been debating the property Vs. Shares decision over the last 3 years. Initially I was 100% set on BTL, but have transitioned to dividend shares. The main attraction for me is the true passiveness, which shares provide. I have recently released a substantial amount of equity from home @ 1.66% and am slowly investing into dividend funds @ 4% dividends. On paper this is cash flowing £500 per month over and above the extra mortgage payment. It appears a no brainier to me and truly passive. Any advice on this strategy.
Yes those sums totally stack up Mark. You have accessed a strategy that few people actually attempt (out of being risk averse), but it can work well. It must be said it is not without its risks… dividends are not guaranteed of course and you have to be careful they are not coming at the expense of capital. You will often find that when a company goes ex-dividend, their share price drops by a proportionate amount. It’s important to ensure you are seeing true capital appreciation over time. Also need to be mindful of interest rates on the release of equity and how they could move up. Well done for taking that initiative though. I still believe that by keeping an eye on diversification and sticking to the strategy long term, it could pay off.
Great video as always, Chris. Do you know if 100% of the pot in a SIPP/SSAS can be invested in a single commercial property or is it only half the pot?
Thanks Mike. Your SIPP can be invested 100% in commercial property if it has the funds to purchase that property. The cash position in the SIPP will soon grow though via rental incomes received.
I’ve recently started focussing more on understanding my pension whilst having a couple of rental properties with plans to buy another in the near future. Whilst I think pensions are great for tax relief, I would much rather have access to the gains from rental income to then re-invest or even better LIVE. What the point in investing all this money when you may not live to see it?
You’re right Jonathan about the flexibility - there are other investment options that allow earlier access too of course (ISAs for example). Retirement is to be planned in stages, and you don’t need access to all capital at once. I think a lot of people tend to underestimate their longevity as well. Whilst it’s true you may not live a long life, if you’re healthy now, there’s a high chance you will live to something like your normal life expectancy.
You could certainly gain from that long term. The only problem is that it won’t be very productive while you hold it as it won’t be generating any kind of income. I prefer investments where your capital can generate an ongoing return.
Correct… this looks at property as an investment strategy. The fact that property is bought in addition to the main residence as an alternative to a pension is inferred.
Hi there. Yes CGT would apply to investment property sales, as discussed from around 8:30 onwards. In the example given though, at the time of this video, the gain would have been covered by the CGT exemption. That exemption has now halved though, so some of the gain would be subject to tax, unless the property was owned jointly and there were two lots of allowance to offset the gain.
In the case of someone having a high mortgage and a pension, is it better to pay more off the mortgage than pay the minimum mortgage and invest more in a pension? People seem to forget that when they have a mortgage they only own a percentage of the equity so the property's value can be deceptive, doubly so for anyone with an interest only mortgage.
Good question Martin. The answer is multi-faceted… from a pure financial perspective, if you are confident that growth potential on investments is greater than interest on debt (which has been the case over the last decade or more) then investing will lead to a better result. Having said that, there is the psychological aspect as well… I don’t think I’ve ever met anyone who has regretted putting themselves into a debt free position, as it does give a great feeling of comfort and stability. The answer is unique to the individual I think.
Hi there. The figures used are simply long term historic returns for comparison purposes only. They are not guaranteed rates and may differ in the future.
Hi Chris. Sorry that this question may be off topic, but am curious if any of your clients are British ex-pats living overseas (or planning to) that have to deal with their UK based pension providers/administrators, and also HMRC regarding 'double tax treaties'; in particular, countries that have a 'territorial' type tax system? Do you have any knowledge/experience in this area? Cheers!
Unfortunately with the way the rules have changed post Brexit I can’t give ongoing advice to non-UK based clients anymore without obtaining specific permissions for the jurisdiction.
Hello Chris, interesting view. Could I ask what is your view on 55% tax on pension pot Rishi Sunak is about to unleash on poor old people that saved/invested mostly of the adult lives and on monies they have already paid tax on?😡🤬
Well the Lifetime Allowance charge has been around for quite a few years and wasn’t introduced by Rishi Sunak. It only affects people with over £1.073m in their pension pots, so I don’t think they qualify as poor old people. It can be something for wealthy pensioners to circumvent though. Also, it’s only 55% if the excess funds are taken as a cash lump sum - it’s 25% if paid into pension drawdown. One final point - people haven’t paid tax on money that has been paid into a pension as it has received tax relief at their highest rate. In that sense, the 25% charge only makes the part that exceeds the £1.073m threshold about as favourable as most other types of investments. What Rishi Sunak doing is just freezing the LTA for a few years, which is essentially a ‘stealth tax’ because it means the allowance isn’t growing while people’s pensions are.
I'm close to the LTA and 55 this year. I'm not worried about it because it only applies once you have withdrawn the £1m or age 75 if sooner. While I don't have a better crystal ball than anyone else, I'm pretty sure that the £1m limit will be increased by the time I get to age 75.
Hi Chris, thanks for your great video. I am 58. Is it possible to receive your guidance about the investment based on my circumstances please? And how can I reach you? Thanks
Hi Chris , great video. I however have 2 rented properties and bought at right price, not only have both properties risen in value the mortgage I had on them the rent covered so it didn’t cost me any additional payments, only additional payments were servicing and general maintenance. Obviously I had to declare on my tax return each year the income and pay the tax due. Currently they bring an income in of about 11k per year and I’m getting closer to retirement. I’m not sure whether to sell one and pay the capital gains tax when I’m not earning or do I just keep taking the income? I owe both properties with my wife so we can split the capitol gains tax which helps. Just not sure what to do.? I forgot to say both properties are now fully paid off .
Hi there. Well I won’t be able to tell you what to do but the questions you need to ask are things like is the rental income fair in relation to the value of the assets? Does it meet your income requirements? What are the income requirements for different stages of retirement and could you do with more flexibility to take more now/less later? Do the properties take time to manage and are you happy to give that time?
Ok lets show the big differances why BTL is good at a younger age First you can benifit from a BTL at any age I started when I was around 22 a very long time ago I used to be an IFA and I did not wish to stay in the rat race of 40hrs so I was free from 40hrs at the age of 40 I invest in pensions now again because of pension freedom but a pension would have never got me out of the rate race until i was 55 so i would have still been working at 54
Yes - all completely true. It has to be said though that the tax treatment of property has become less favourable in recent times, which makes the case for an ISA/pension split to provide max flexibility and excellent growth potential. I do certainly believe in the potential that property has to produce excellent returns though.
@@chrisbourne-retirementplanner There is a bit of a bear trap is it right to let the tax tail of the dog wag the dog would you rather have a 30k taxable income or a 10k more tax efficient income ? The way I look at this is BTL is a business which is hopefully profitable and like any other business pension planning is a good thing and when the investor arrives at the date of retirement both together pay the investor into older age The pension can look after the investor into very old age and then with some tax planning property assets can be gifted away I think as we age we have a tenancy to hoard money Pensions are so helpful in very old age so an investor can plan there exit SIPP gives you options
@@Jeffybonbon No you should always make any investment case based on the net position it will leave you in, but it is harder for property investors to gain that edge now that the treatment of income and gains from property is less favourable. If you approach property investing as a business, like you've said above, you tend to do better. I find that my clients who have 10+ properties are happy with their situation, but many of my clients who have 1, 2 or 3 properties are finding it more difficult to see the benefits compared to a more passive approach.
@@chrisbourne-retirementplanner The answer is do every thing that gives you what you want BTL Pension ISA Forestry Farm Land ect are all tools you cant hammer a nail with a screwdriver I have been a landlord for over 32 years and its worked well but I now diversify but If I did not have BTL I could have never diversify as i do now BTL id done right works
Not balanced. There is no tenant rental income in the investment property ROI calculation. Further no one plans to sell an investment property after only 1 year. Utility costs are paid by tenant. Agree that utilising your tax free pension contribution allowance from a tax/long term return perspective gives highest rate of return, however I'd prefer to have a investment property outside of pension structure in addition tot he pension since that offers constant inflation proofed stream of rental income (plus capital growth over long term) as I more closer to retirement and directionally want less risk in my portfolio. with investment property held outside of pension , always have the ability to access capital at any point (before or after retirement). As always the rule is not put all your eggs in one basket.
There’s no tenant rental income because the calculation is not based on buy and let it’s based on buy and flip. For many property investors, this is their first choice. They only decide to rent if they can’t realise the value they want from a turnaround and resale. In that scenario, there would be no rental income and the owner is liable for costs, but they avoid tenant risk and can scale their assets more quickly through faster realisation and reinvestment of sale proceeds.
I apologize if this seems a bit critical, but as I watched, I had some "yeah, okay, but" thoughts. Please know it's not meant as a challenge; I enjoy your content, especially your 4% rule video, which even made my pension spreadsheet emotional! My response is looong due to addressing specific points.
I invest in both and pensions, pretty much equal on both, and I have to say I found the presentation a little confusing. I couldn’t relate to the numbers and scenarios used. It’s a comparison between pensions and properties which I assumed would be investment property but the first half was primarily focused on residential property equity, then dipping into BTL and even flips but never clear which strategy you were comparing against pensions.
For example the 'best investments' graphic showed residential property at 6.32% with global shares at 8.26%. Is the investment strategy simply to buy the biggest house you can to live in instead of a pension then eventually downsize? I'd imagine that stopped working somewhere around the 1992 crash. If you are comparing pensions to property as an investment, I would have thought the comparison would be investment property not residential.
For the uninitiated, the Pension vs Property discussion needs to first define what "property" may mean, then stick with that. ie flips or rentals. Flips are great in a buoyant property market but stop working in stagnant/falling markets. Flips is also "a job", you are a fulltime builder and project manager more than an investor, its hard to do it well and keep a PAYE going. The rental market is more passive, essentially subdividing into these areas:
>Holiday lets/serviced accommodation (potentially good, too many peaks and troughs for me)
>Residential (single family homes, student accommodation, HMOs)
>Commercial (shops, offices, etc - usually biggest profit here, but not a market I know)
I'm a simpleton, so only do vanilla single-family homes BTLs. It has the worst tax breaks and is the most regulated sector but is easy to learn at least and quite predictable. There are two incomes streams: equity and net cashflow.
The £30k example was confusing. You said 33.97% RoI, but that was off the back of a one-off tax relief payment. You don’t get that in year two, or three, etc and you don’t take out a pension for a single year so its not really a quotable RoI.
For me, a pensions discussion is about how much do I put in and what does that give me in retirement in terms of a monthly payment, the pot size is secondary. The real RoI is when you actually start taking money. So the comparison is really this:
1. As an HRT, if I put in 30k after tax treatment that becomes 45k. Another of your videos says the realistic drawdown is 3%, so a 45k pot achieves an income of £1,350/yr.
2. A property investor, I know that a 30K investment gets me a decent property achieving £650/m rent but, after costs (mortgage, full management, insurances (RGI, legal, buildings), maintenance (10% budget), accountant, etc) I'm left with around £175/month or £2,100/yr. So not double, but a solid 55% more.
Note that I've compared the two investments without even mentioning equity growth and leverage. That’s because I prioritise yield over equity. I pretty much ignore the thing you focused on. Equity happens but I don’t put too much thought into it, yield is money in your pocket today. Equity is speculative.
Here's bunch more "hhm, but's" that popped into my head whilst watching:
* Tax incentives: Free money is good, but there is a cost. The free money ties you into a restrictive product, you can't access any of your money until 55/57, once you start drawing down you are very restricted on future investments into your pension.
* Property has tax-free drawn down as well, you just refinance. If you buy a property at 100k with a 25% deposit, there is 75k owed to the bank. After ten years of 6% house price growth, you have an asset worth 180k. The bank will lend 135k on that, leaving you holding 60k tax free cash (ie a 33% tax free payment). Unlike pensions, you haven’t eaten into the value of your asset, you still own that 180k pile of bricks, next year you still get 6% growth on that 180k. The downside is you can end up in a CGT whole if you are ever forced to sell.
* Comparing rental income to a tax-free lump sum isn’t like-for-like. The tax-free lump sum is a one off, so closer to refinancing. Rental income is the equivalent to regular draw down payments - which are taxed both the same (property does allow you to gift to a spouse if they aren’t using their tax allowance).
* Not being tied into the government's restrictive pension model rules means you get to keep the rental income from the day you bought. You can spend it, reinvest it, do whatever you want. You can even pay it into a pension!
* Property investment is lumpy. If you invest £100 into a pension it earns from the day you pay in. With property you are investing in lumps of (at the very least) 30k. it takes a while to save £30k, it takes several months to find and buy a property. That’s all-dead time vs a pension.
* Pension pots run out. Does the 4% rule work? probably not, 3%? Maybe; but if you've estimated correctly, at the point of death, there probably wont be much left. If you live too long you become a burden on your family. Property income comes from the rental service, not by slowly selling off the asset. It's still there when you die, with careful tax planning your kids can inherit your retirement.
* Both vehicles grow; if you a lucky you may tap into the average global growth of 8%. Your pot goes up by 8% compound which in turn means your future 3% drawdown goes up (but once you start drawing down money those 8%'s are on smaller amounts. Property is different, the regular income is linked to the rent/debt ratio, not the asset value.
* Leverage has been mentioned; at 75% ltv, a 2% increase in your property price equates to 8% increase in your investment. No tax incentive, but 4:1 gearing is hard to beat. Up until 2009 equity growth on investments was a big deal, especially in London and the south. Less so now, cashflow is king.
* The 4% rule fails on pensions mainly because you need to keep adjusting for inflation. You don’t really get that on property. Rents continue to go up largely in line with inflation, so you don’t need to account for it. In fact, costs in BTL are pretty much fixed on the day of purchase and inflation eats away at debt over time. I kicked my spreadsheet the other day and noticed that a 2% increase in rent equates to a 6% income increase (3% increase becomes 9%, etc). If your boss told you can have a 6% pay rise every year, you'd be happy, its inflation busting.
* There are tax friendly and inheritance wrappers for property of course. I don’t pretend to know much about tax friendly investments, and they typically come at the cost of higher lending and accountancy charges but are ever more popular since section 24 was introduced. Unless you die unexpectedly early, a pension pot is typically pretty much depleted at point of death so is tax-free inheritance is that much of a big deal with pensions?
* Costs: The initial cost is 3% SDLT + £1,000 legals plus tenancy set-up (around £500 for safety checks, contracts, etc). The ongoing costs are already accounted for in the 10% maintenance. Refurb costs can typically be taken back out at the next refinance point. In terms of developing costs too add value: again this is conflating residential and rental properties, they are two different things. You don’t buy a rental to extend it and store equity, you buy for cashflow. You wouldn’t spend 40k on a rental property to add an extra room that may bring you in an extra £100 and cost you a fortune being empty for 6 months while you do it, you'd just spend your 40k buying another property.
* BTL isn’t for everyone, it only appeals to a certain type. Like many people I started accidentally, our house sale fell through, the market crashed so we decided to carry on with our purchase and rent ours out. That was 25 years ago, we liked it so carried on. Whilst I can confidently say in 25 years, I have never taken a call in the middle of the night and have never personally called out a plumber, the property business does nonetheless take a fair amount of time to research, learn the different markets, to purchase, etc. Most time is spent learning the business, its pretty high stakes. Once learnt, provided you structure properly, the ongoing management is low. A friend of mine has 37 properties in his portfolio, he stopped buying a while ago and now spends less than 5 hours a month on property. That’s not too bad for a six-figure salary. He's in his late forties - no dependency waiting around to hit 55, being tied to access rules to receive tax gifts.
* Government! The biggest risk to property investment is government interference. You get a little of that in pensions with tax tweaks etc but nothing like property. Additionally, there are serious legal implications if you don’t do know your obligations as a landlord and get things wrong. Government is the single biggest reason so many landlords are retiring and why so few new landlords are replacing them. The government has created a rental market crisis.
I get that I may have painted an overly rosy picture of property, but I haven’t spoken about voids, tenants damage (which can be in the 10k's), the costs involved in regaining your property if the tenant refuses to leave, etc. If you jump onto any landlord forum you will regularly see "SIPP or another BTL" threads and responses are mixed - if anything the consensus seems to be slightly in favour of pensions or ISA's. The landlord community is pretty downbeat at the moment. I'm not completely evangelical for property, I just wanted to show how we (well, some of us) view and compare the numbers.
Hi Chris…thank you for such a great video. It’s refreshing to listen to an expert who isn’t selling themselves. Your balanced and methodical approach is very welcome and highly useful!
Very kind of you to say! Thanks for watching.
The thing people don’t take into account is that stocks are a passive investment, BTL is a business
SO PENSIONS & S&S ISA's IT IS THEN, GREAT VID 🙏
Thank you! All assets have their place and their advantages, but many people prefer the passivity of a pension/ISA strategy.
Really good video Chris. For many years we thought about getting a buy to let property but decided to get advice from a financial planner. We were advised, due to our age nearing retirement and our financial circumstances to invest in ISAs, contribute more to our pensions, invest in a disretionary onshore bond and get a whole of life insurance policy to safeguard our estate against inheritance tax. These investments are the best things we did. We retired early. Enjoy a lucrative hassle free retirement with a much improved lifestyle from income from our investments and we will still leave a sizeable estate to our children.
Your videos are priceless Chris and the value of getting professional financial advice is well worth every penny.
The value of good financial planning showing through right there Shree. When people receive proper financial advice, not just ‘product selling’, its power can be life changing. Thanks as always for your support.
@@chrisbourne-retirementplanner Yes Chris, absolutely good ongoing financial advice vs product selling is very different. I think people are afraid of adviser fees, however, the funds financial planners choose and the strategies they use to make you good money more than offsets the ongoing charges they apply. Particular as you get older. It's a one stop shop for all your tax and financial planning. Leaving you to enjoy your retirement to the fullest. My husband and I watch your videos every week and never fail to share them with family and friends. In fact, my children are really enjoying investing, particularly during these low market conditions.
Great video, Chris. Very well balanced and food for thought. When I was a teacher I would obviously have my pay deducted for pension purposes but haven't given a pension much consideration since quitting teaching. I've focused on property initially because the income now has enabled me to quit my job and do more of the things that I want to do. It hasn't really been a retirement focus. But as I get closer to meeting my present day cash flow goals, it is something to consider. Thanks for putting it back on the radar. 😀
Hi Dafydd. Good to hear from you, and I’m pleased that the content has provided some food for thought!
if btL is done early the advantage of leaving work early can happen i did it at 40 i am now 65 twenty years of freedom
Just came across your channel. Undeniably, pensions are better for IHT, Capital Gains and ‘Passiveness’ but it ends there. Property prices have risen 200% in the last 20 years plus what you get in that time by way of rental payments. The huge advantage of property over pension is that you can access property funds whenever you like. You don’t have to wait to retirement age. If you put a solid plan in place you can easily retire with property in 10 years if you reinvest and put additional capital (bonuses) etc. into it. You never know what the government will do with retirement age and frankly I don’t want to wait to 57 to start life without the burden of ‘having’ to work. Great insights though and both together is probably the right approach but I can also see why people wouldn’t want to put effort into property given the legislation and interest rate rises, but if you know what you are doing and stick to the numbers it still beats anything else out there for me
Hi James. Yes I think property can be excellent. I’d say you have to approach it more like a business to be really successful though.
Love this thank you Chris! So refreshing to hear this and it is such sensible advice.
You’re very welcome Gemma, glad it’s of use!
Just my opinion and open to criticism but...leveraging allows re-mortgaging to release original deposit again. We brought BTL (covers its own costs) and remortgaged 5 years later to get our deposit back out. Currently house has cost us nothing and is getting capital gains and monthly income (currently covers costs but one day will pay me monthly) . So in a 15 years time an investment of roughly £0 will be paying me £750 a month (non adjusted at todays rent rate). I have a Defined benefit pension with a cash value of £58000 that will apparently pay me £110 a month at retirement. For me there is no contest. And the deposit we recovered goes towards another house.. and so on. Many thanks for your insights.
No criticism there Tom. This is what I’d refer to as ‘good debt’. An example of the excellent leveraging potential of property. I imagine that pension is deferred (not active) and hasn’t received much in the way of contributions from you though? Pensions have to be nurtured to unlock their real potential.
I'm doing both, can't beat the leverage options available with BTL, and helps with the pre 57/58 retirement options. Another great video though and one of my favourite channels. Close to 10k subs now, onwards and upwards!!
Yes I really believe property offers some major advantages Stu. Sounds like you’re taking a well diversified approach! Thanks for continuing to support my channel 👍🏼
Like the video Chris. Enjoyed the last section, as someone who has our commercial property sat in his SIPP - gives the best of both worlds in my view.
Viewers may not spot (but you did say) the property has to be commercial, and the rent has to be verified by independent RICS surveyor. You then have the usual Landlord things to deal with (like replacement CH boiler) that comes out of the income (dependent on Lease clauses).
But the rent obviously avoids tax in our business, and comes in tax free into the SIPP. And as you say the sale is free of CGT. The only observation I'd make is that until cash build up in the SIPP there's little flexibility to draw down unless you borrow against the property, which is counterproductive.
As an observation, it feels like the number of SIPP providers who offer this is reducing - you may have a view on that.
I totally agree with you that the market seems to be shrinking. It is a specialist area though, and there are still some good providers. You’re right about cash too… it helps if the rental income can accrue over a fairly long period before withdrawal.
I don't have to worry about money investment, because i don't have any.
Haha yeah, Biggy said it best… ‘Mo Money Mo Problems’
@@chrisbourne-retirementplanner i still watch and subscribe to your videos though, because incredibly informative and very well researched and who knows maybe one day...... Anyways keep up the good work.
@wacky. Problem is you’re probably the majority of peeps these days I’m afraid 🤔
Constantly ask myself the same.. Currently pay in nearly £500p/m into police pension which whilst still good nowhere near what it was. If this was invested in property seems to be a much better way to have a 'visible' pension growing. Would be looking and capital appreciation rather than day to day gains which could even put the monthly rent profit into a Lifestyle/ETF fund.
Property investment can certainly complement any pension Ryan. The great thing is that anyone can do it. You’re in a good scheme as well, the world is your oyster 😊
Great points. Also it’s worth keeping in mind that you can have your pensions invested in property through REITs and you might potentially get almost all the benefits of real estate without many of the drawbacks. Especially that Sunday night boiler breakdown call 📞…
Yes REITs are certainly an option and offer diversification benefits above directly held property. There isn’t the same potential to leverage your return, but a good low cost way to access property as an asset class.
Really enjoying your channel Chris. Sensible and informative always. Your points here are fair and to many this will be a surprise as we are a country of property owners in the UK. Unfortunately the tax regime has squeezed the buy to let market to the point of not making it quite so attractive. All intentional of course as the government seeks to free up property for people to live in rather than rent. Also BTL is easy money when it comes to taxation, so a nice tax grab for the chancellor
Thanks Linda I appreciate that. Yes you’re absolutely right - private landlords are a soft target when a bit of extra tax needs to be raised! Having said that, pensions do tend to come into the crosshairs for the same reason, but it’s only the wealthiest pensioners who are really affected.
Another great video Chris, very interesting and informing. Keep up the good work 👍
Cheers Tom much appreciated mate 👍🏼
The only thing that I don't like about pensions this availibilty age keeps getting higher and higher... I am 43 now and I wonder what age that I will be able to be getting access to my pension. They should lock the age limit depending on the time that you start investing. That's why I am leaning on more property investing than (work) pensions. I do invest in my ISA though...
It’s a fair point John. The moving of goalposts is frustrating. I agree there should be some sort of guarantee based on when you start investing into a pension.
Excellent video!
Early on in the video, you state that a house bought some time back may have had a historic cost of £50,000. Then you state that running expenses and financing costs tend to be overlooked. You have made the assumption that the property was for habitation by the owner! Why have you assumed that? It is also possible that the house was bought for that initial sum and then rented out, say as a BTL, SA or HMO or whatever. If so, then those additional expenses would have been paid for in part or in full by the rental profits!
You make the excellent point that unlike buying shares and bonds for a pension, buying properties can be leveraged hugely with the use of a mortgage, so with a 25% deposit of, say £50,000, you can purchase a house for £200,000! To buy £200,000 of shares, you need...£200,000 alas!
Rather than seeing pensions and property ownership as in opposition, as you quite rightly say at the end, it is possible to marry them and work in unison, rather than in opposition! For example, a SIPP or a SSAS are pensions that could hold commercial properties. Specifically, a SSAS could borrow 50% of its value to increase its available cash. Furthermore, a SSAS could loan back half of its total value to the sponsoring company, which can then do what it likes with it, even investing in residential properties, like BTL, which the SSAS cannot do alone. Clearly, advice znd training would be needed before venturing down these paths.
So, for me, it is not a question of which is better, pensions or property, but how to get the best out of them both through co-operation.
Hi John. No the assumption isn’t that the property is used for habitation, it is that the house is bought, refurbished and flipped. It is further assumed that this process is completed within a year. Based on this strategy, it wouldn’t be realistic to assume there would be any rental income received.
great video ! thanks for bringing up all these info !! cheers
Thank you for watching Alexandre 👍🏼
I plan to do a bit of both.
At retirement or before if you can manage buy a 2nd property in the UK or downsize - ideally to somewhere that can be holiday let.
Use pension lump sum to fund purchase of a property abroad, then live between the two properties and holiday let them when I'm not there.
Sounds like a great plan Gary! Somewhere warm I hope?
@@chrisbourne-retirementplanner hopefully Portugal on NHR paying 10% tax!
@@garycroft8213 ah i wondered why Portugal was so attractive (apart from the sun & low cost of living of course!)
My dad knows a friend that owns probably 10-12 rental properties and I've asked him about pension and stuff like that. He said, "if I ever need money I could just sell one property or half". He now is diversifying his cash in gold and silver and I believe he got a chunky amount of it, guy can easily have 2-15kg worth of pure gold if not more. I honestly don't see him being an ordinary old guy with a normal pension he would be either living off from rental income or sell some of the properties he got and survive with them.
He only needs 3 or 4 to fulfill his lifestyle. The guy is frugal and only travel once a year with his family and the rest of the money is either saved up for future investments or buy insane amount of gold every year. I believe this is his pension and it seems to be working quite well.
He's 46y old and i believe his first property was when he was 20-25. This allowed him to not work a job and instead focus on either growing more properties or just save money in gold when he and his wife gets old.
in 20-30 years his kids probably won't have to worry about a penny.
The thing that will most influence your future wealth is what you do yourself, not what your friend's dad does.
Most people do nothing, which is why most people are broke.
@@ChrisShawUK not everyone is gifted my friend :). I believe you can improve a lot of things including your finances but to own so much its basically connections in most countries im not saying its impossible alone but it does help to get someone to boost ya.
@@penguingobrrbrr353 sounds like you have good connections. Is your dad's friend helping you out to build your own wealth?
Really good videos Chris, very fair and balanced. For a layman like me, it’s hard to know who to trust my money with, do you have a video on how much money a person would need to invest in shares to live off a modest income before retiring? Thanks
Thank you. Yes, try these ones…
Want To Build A £20K TAX FREE PASSIVE INCOME From Scratch? Here's How!
ua-cam.com/video/diFUOeKuDJc/v-deo.html
The Definitive UK Guide To Investing For Retirement After 40 (For Beginners!)
ua-cam.com/video/M1-Ftuo1dl8/v-deo.html
Hopefully they help!
Great video Chris. Nothing to suggest BTL will become any easier in the future. Costs of environmentally friendly policies such as installing heat pumps plus the end of rock bottom interest rates won't help. The biggest argument against BTL for me is time spent on repairs, dealing, with lawyers, accountants etc, it's surely easier to buy a few REITS
Hi Phil. Yes the tax changes and other action taken to penalise property investors has certainly reduced its attractiveness. There are still good opportunities of course, but they’re a bit harder to find.
Some good points- although your initial points about buying a house of it is your own property- you need some where to live so you would have to pay rent and still have all the bills anyway. So the point is really only valid for additional investment properties
You’re right Ian, but my point was that people transpose the growth they’ve achieved on their main residence to property investment in general, and use that as an unfair barometer against other methods of investment without really accounting for the disproportionate level of funding given to their property.
The section at 5:37 "if you sell the property in a years time"... Surely there's also the income from rental being missed off here? A property of circa £140k in my area would rent for over £1000pcm. So, there's an additional 12k+ to go on that bottom line? Not just the pure capital appreciation of the asset?
No. This is based on buy and flip not buy and let.
Thank you for explanation! What about buying property via Ltd as a business and work for yourself and grow portfolio and pass it on? What do you think?
Hi Anna. Yes there are certain advantages to owning property through a company structure, namely that you can control how much income tax you pay and can essentially avoid tax on gains by fully reinvesting profits. There are drawbacks however, in that it is more difficult to secure lending through a company structure because deposits have to be bigger, and rates are generally higher. You also wouldn't usually qualify for Business Property Relief on assets held in a property company, which means that your share of the value of the holdings would be subject to Inheritance Tax on death.
About 14 years ago I had some "spare" cash (sold a semi and bought half a detached in a cheaper area). I considered BTL, and chatted to strangers about lettings. When a fifth person told me how a bad tenant had not paid rent or utilities, had to be taken to court, and then trashed the property before disappearing, I crossed BTL off the list of possibilities. It all went into a SIPP and an ISA, with Vanguard. It's value has fallen occasionally, but it's always been more than I put in. I feel that drops don't really matter if you aren't ready to withdraw, so there's time for recovery. And no, they've never phoned at 6 on a Sunday to say that the boiler is broken!
Precisely Pam! If it’s truly passive you want then you won’t get that from direct property ownership (certainly not without cost). But that’s not to take away from the potential it can provide as an asset class.
Property income is far more predictable/reliable than stock market.
He says at 7:30 if you have 30k, you can claim 7.5k (25%) as a basic tax payer then an additional 7.5 (25%) as a higher rate tax payer. You don’t get 50% back as a higher rate tax payer do you? And as as additional rate tax payer do you get 7.5+9.375 (56%) back?
I have a few properties , all mortgage free.
I also have a few pension too .
I will have to start thinking about my portfolio.
Found the video super interesting, love the bit about linking a business and pension together.
Some thing I will seriously consider 🤓🤓👍🤗
Thank you Lawrence. Sounds as though you’re in a good position. Are they all residential properties? Yes pensions can be great vehicles for holding the right sorts of properties.
Thank you for your message.
All my properties are residential.
Can residential properties be put in a pension or just commercial?
All my properties are in London, leeds and abroad.
Thank again 👍👍👍👍
Great video! Agree with all your points, for me the kicker is the passiveness of stocks v activeness of property. Also if you want leverage you can find this in the stocks world if you can handle/stomach the risks.
Definitely! And yes you’re right about leveraging stock growth with options like CFDs. Although you have less control over how much value can be added to a stock’s price.
Loved this video and showing great points thank you! I already have some properties and have been considering whether to purchase more or to invest it into pensions and ISAs in order to build up this asset class so this video came at perfect timing ! Plus it reiterated my thoughts too regarding the great benefits of pensions over property , especially the true passive nature and liquidity of pensions . Plus the goverment have bought in more and more regulations with buy to let properties in recent years, which again adds to the many costs involved in property too. I have heard about using your SIPP in order to purchase commercial property- this may be the way forward. Do you deal with purhcasing commercial through SIPPs, a video on this would be great, thanks!
Thanks Becky! There a certainly many benefits to taking a diversified approach. I do quite a lot of work for clients involving purchasing commercial property with their SIPPs and SSASs. At some point I will definitely do a video on this.
Very well explained and not biased to one or the other 👏👏👏👏👏
Thanks Robert! I do try to be as balanced as possible, and I do genuinely feel that both of these offer huge benefits.
A lot of British Gas guys have transferred to a SASS and have eventually through a bit of layering have purchased residential BTLs dont know how its done exactly
To my mind it's not a case of either/or it's both.
However this presentation fails to look at buying a property and holding it.
Using the example that Chris uses for the property :
Assuming property is let at £7800 per annum.
Letting agent and other costs = £2000 pa
Mortgage interest costs £2700
That leaves £3100 positive cash flow pa (or 10.3% yield) before tax that will keep paying out, and increasing, year after year.
I point this out because I started with £1000 to my name. I now have a few properties and my position is that whilst I have a chunk in a SIPP, also a chunk in an ISA, I will never need them becasue the houses give me £35K a year after costs which is more than I need to live on to my current standards by a considerable margin.
So it is certainly possible to be financially independent through property.
But still it's a fact that I think spreading investments between property and a pension is a very good idea. Anyone that has been in the rental property game over the last 6 or 7 years will be well versed in the grief that the powers that be have thrown our way over that time with tax changes/regulation changes/new laws/ etc etc, so having an alternative investment strategy running at the same time does no harm at all.
PS. Buckle in for the property crash in 2026, it'll be quite a ride ..... but not a problem so long as you're into property for the long haul, if you've flipping properties it could be a different story unless you plan and execute your strategy well.
💯%👍
I do both. About 50:50. Rental property also gives me passive income which pays for school fees and house maintenance!
You can’t beat passive income! Does the management of properties take up much of your time?
@@chrisbourne-retirementplanner a little bit and often. You must keep maintaining the property and keep on top of jobs. It's easy to underestimate the cost of this. Find some reliable tradesman or do it yourself. End result is happy tenants and a decent/quality asset.
Please can you cover VCT and EIS schemes?
Will do more on these in future 👍🏼
You can't include utility bills as a cost of living in a house. If you rented instead you'd still be paying bills, council tax etc, they're just a fact of life, a tax on being alive. Maintenance is certainly a cost but no one forces you to get a new kitchen or ... orangery (?) and, unless derelict previously, they barely increase the property value. I also think comparison to the stock market is a bit dubious. Yes shares might have gone up in price faster over the last 23 years but did all of those shares pay substantial dividends? Normally stocks that rise in value don't pay dividends and vice versa. Property pays substantial dividends in the form of rent. (or if you live in the property allowing you to avoid paying rent to someone else). A fair comparison would be consider only shares which have paid, on average, 5% dividends throughout the period.
Hi John. Utility bills for your own home are a fact of life, but in this example we’re referring to utility bills on a property you’ve bought to refurb and sell - they’re not a fact of life, but a cost that has to be taken account of when calculating the return on investment. There is no tenant in there covering those costs so you as the owner would have to cover them.
The stock market assumption just uses historic data, which shows a total return including share price growth and dividends. It’s not guaranteed of course, but used as a guide for the purpose of comparison. The figures are based on the whole market rather than a particular subset of companies. Rental yields are indeed a valuable part of property returns, but they are not relevant to the example given and in many cases are used to service the cost of debt.
Before I watching I thought, "duh, obviously property!". Now, nine minutes in, I'm thinking I've been missing a trick. Definitely need to improve my understanding of pensions' benefits and risks.
By nature I'm conservative with investments and have stuck to property, and have always gone for fixed-rate repayment mortgages. I'd have been better off with trackers over the past few years, but the fixeds have given me peace of mind.
I do need to get my finger out and ensure things are planned to avoid inheritance tax.
Thanks for your comment. Really pleased it was thought provoking. That’s what I aim to do with my vids.
Hi Chris,
Interesting video. Not thought about it the way you have set out before.
I have been debating the property Vs. Shares decision over the last 3 years. Initially I was 100% set on BTL, but have transitioned to dividend shares. The main attraction for me is the true passiveness, which shares provide.
I have recently released a substantial amount of equity from home @ 1.66% and am slowly investing into dividend funds @ 4% dividends.
On paper this is cash flowing £500 per month over and above the extra mortgage payment. It appears a no brainier to me and truly passive.
Any advice on this strategy.
Yes those sums totally stack up Mark. You have accessed a strategy that few people actually attempt (out of being risk averse), but it can work well. It must be said it is not without its risks… dividends are not guaranteed of course and you have to be careful they are not coming at the expense of capital. You will often find that when a company goes ex-dividend, their share price drops by a proportionate amount. It’s important to ensure you are seeing true capital appreciation over time. Also need to be mindful of interest rates on the release of equity and how they could move up. Well done for taking that initiative though. I still believe that by keeping an eye on diversification and sticking to the strategy long term, it could pay off.
Great video as always, Chris.
Do you know if 100% of the pot in a SIPP/SSAS can be invested in a single commercial property or is it only half the pot?
Thanks Mike. Your SIPP can be invested 100% in commercial property if it has the funds to purchase that property. The cash position in the SIPP will soon grow though via rental incomes received.
@@chrisbourne-retirementplanner Thanks Chris.
I’ve recently started focussing more on understanding my pension whilst having a couple of rental properties with plans to buy another in the near future. Whilst I think pensions are great for tax relief, I would much rather have access to the gains from rental income to then re-invest or even better LIVE. What the point in investing all this money when you may not live to see it?
You’re right Jonathan about the flexibility - there are other investment options that allow earlier access too of course (ISAs for example). Retirement is to be planned in stages, and you don’t need access to all capital at once. I think a lot of people tend to underestimate their longevity as well. Whilst it’s true you may not live a long life, if you’re healthy now, there’s a high chance you will live to something like your normal life expectancy.
Also, when you buy an investment property you don't pay the loan. The tenants do .
This isn’t based on renting Robert - it’s a buy and sell (flip) strategy.
What about buying land and just sitting on it?
You could certainly gain from that long term. The only problem is that it won’t be very productive while you hold it as it won’t be generating any kind of income. I prefer investments where your capital can generate an ongoing return.
CGT is only applicable to second properties...
Correct… this looks at property as an investment strategy. The fact that property is bought in addition to the main residence as an alternative to a pension is inferred.
What about capital gains tax?
Hi there. Yes CGT would apply to investment property sales, as discussed from around 8:30 onwards. In the example given though, at the time of this video, the gain would have been covered by the CGT exemption. That exemption has now halved though, so some of the gain would be subject to tax, unless the property was owned jointly and there were two lots of allowance to offset the gain.
In the case of someone having a high mortgage and a pension, is it better to pay more off the mortgage than pay the minimum mortgage and invest more in a pension? People seem to forget that when they have a mortgage they only own a percentage of the equity so the property's value can be deceptive, doubly so for anyone with an interest only mortgage.
Good question Martin. The answer is multi-faceted… from a pure financial perspective, if you are confident that growth potential on investments is greater than interest on debt (which has been the case over the last decade or more) then investing will lead to a better result. Having said that, there is the psychological aspect as well… I don’t think I’ve ever met anyone who has regretted putting themselves into a debt free position, as it does give a great feeling of comfort and stability. The answer is unique to the individual I think.
Why not both?
Yep, that’s what I advocate.
Brilliant as always.
Thanks very much! Appreciate your kind words.
Isn't the assumed gains on the investments totally out of whack / flawed thinking? If not where do I go to get this rate???????????
Hi there. The figures used are simply long term historic returns for comparison purposes only. They are not guaranteed rates and may differ in the future.
Hi Chris. Sorry that this question may be off topic, but am curious if any of your clients are British ex-pats living overseas (or planning to) that have to deal with their UK based pension providers/administrators, and also HMRC regarding 'double tax treaties'; in particular, countries that have a 'territorial' type tax system? Do you have any knowledge/experience in this area? Cheers!
Unfortunately with the way the rules have changed post Brexit I can’t give ongoing advice to non-UK based clients anymore without obtaining specific permissions for the jurisdiction.
@@chrisbourne-retirementplanner OK. Thanks for the reply.
Hello Chris, interesting view. Could I ask what is your view on 55% tax on pension pot Rishi Sunak is about to unleash on poor old people that saved/invested mostly of the adult lives and on monies they have already paid tax on?😡🤬
Well the Lifetime Allowance charge has been around for quite a few years and wasn’t introduced by Rishi Sunak. It only affects people with over £1.073m in their pension pots, so I don’t think they qualify as poor old people. It can be something for wealthy pensioners to circumvent though. Also, it’s only 55% if the excess funds are taken as a cash lump sum - it’s 25% if paid into pension drawdown. One final point - people haven’t paid tax on money that has been paid into a pension as it has received tax relief at their highest rate. In that sense, the 25% charge only makes the part that exceeds the £1.073m threshold about as favourable as most other types of investments. What Rishi Sunak doing is just freezing the LTA for a few years, which is essentially a ‘stealth tax’ because it means the allowance isn’t growing while people’s pensions are.
I'm close to the LTA and 55 this year. I'm not worried about it because it only applies once you have withdrawn the £1m or age 75 if sooner.
While I don't have a better crystal ball than anyone else, I'm pretty sure that the £1m limit will be increased by the time I get to age 75.
Hi Chris, thanks for your great video. I am 58. Is it possible to receive your guidance about the investment based on my circumstances please? And how can I reach you? Thanks
Hi there. Apologies - I must have missed this one. My email address is in the About section of my channel homepage.
Thank you once again Chris
You’re very welcome Michael. Glad you found it helpful 👍🏼
Fabulous video 🥳🥳🥳🥳🥳
Thank you Lawrence! Pleased you enjoyed it 👍🏼
You didn't index the house price increase against inflation
Which house price increase?
Hi Chris , great video. I however have 2 rented properties and bought at right price, not only have both properties risen in value the mortgage I had on them the rent covered so it didn’t cost me any additional payments, only additional payments were servicing and general maintenance. Obviously I had to declare on my tax return each year the income and pay the tax due. Currently they bring an income in of about 11k per year and I’m getting closer to retirement. I’m not sure whether to sell one and pay the capital gains tax when I’m not earning or do I just keep taking the income? I owe both properties with my wife so we can split the capitol gains tax which helps. Just not sure what to do.? I forgot to say both properties are now fully paid off .
Hi there. Well I won’t be able to tell you what to do but the questions you need to ask are things like is the rental income fair in relation to the value of the assets? Does it meet your income requirements? What are the income requirements for different stages of retirement and could you do with more flexibility to take more now/less later? Do the properties take time to manage and are you happy to give that time?
Ok lets show the big differances why BTL is good at a younger age First you can benifit from a BTL at any age I started when I was around 22 a very long time ago I used to be an IFA and I did not wish to stay in the rat race of 40hrs so I was free from 40hrs at the age of 40 I invest in pensions now again because of pension freedom but a pension would have never got me out of the rate race until i was 55 so i would have still been working at 54
Yes - all completely true. It has to be said though that the tax treatment of property has become less favourable in recent times, which makes the case for an ISA/pension split to provide max flexibility and excellent growth potential. I do certainly believe in the potential that property has to produce excellent returns though.
@@chrisbourne-retirementplanner There is a bit of a bear trap is it right to let the tax tail of the dog wag the dog would you rather have a 30k taxable income or a 10k more tax efficient income ? The way I look at this is BTL is a business which is hopefully profitable and like any other business pension planning is a good thing and when the investor arrives at the date of retirement both together pay the investor into older age The pension can look after the investor into very old age and then with some tax planning property assets can be gifted away I think as we age we have a tenancy to hoard money Pensions are so helpful in very old age so an investor can plan there exit SIPP gives you options
@@Jeffybonbon No you should always make any investment case based on the net position it will leave you in, but it is harder for property investors to gain that edge now that the treatment of income and gains from property is less favourable. If you approach property investing as a business, like you've said above, you tend to do better. I find that my clients who have 10+ properties are happy with their situation, but many of my clients who have 1, 2 or 3 properties are finding it more difficult to see the benefits compared to a more passive approach.
@@chrisbourne-retirementplanner The answer is do every thing that gives you what you want BTL Pension ISA Forestry Farm Land ect are all tools you cant hammer a nail with a screwdriver I have been a landlord for over 32 years and its worked well but I now diversify but If I did not have BTL I could have never diversify as i do now BTL id done right works
Not balanced. There is no tenant rental income in the investment property ROI calculation. Further no one plans to sell an investment property after only 1 year. Utility costs are paid by tenant. Agree that utilising your tax free pension contribution allowance from a tax/long term return perspective gives highest rate of return, however I'd prefer to have a investment property outside of pension structure in addition tot he pension since that offers constant inflation proofed stream of rental income (plus capital growth over long term) as I more closer to retirement and directionally want less risk in my portfolio. with investment property held outside of pension , always have the ability to access capital at any point (before or after retirement). As always the rule is not put all your eggs in one basket.
There’s no tenant rental income because the calculation is not based on buy and let it’s based on buy and flip. For many property investors, this is their first choice. They only decide to rent if they can’t realise the value they want from a turnaround and resale. In that scenario, there would be no rental income and the owner is liable for costs, but they avoid tenant risk and can scale their assets more quickly through faster realisation and reinvestment of sale proceeds.